The Market is Stunned by a Record Rise in Gold Prices

The rate at which gold has broken above $2,050 an ounce last week has put some market participants out of the game for the fear of a correction. However, many analysts are predicting even more gains as the coronavirus crisis encourages investors to buy bullion.

The record rise, which boosted gold to $2,050 an ounce, has made the precious metal one of the top performing assets of 2020. According to Peter Hobson from Reuters, it has increased by $500 this year. And by $200 in the last two weeks alone.

Frederic Panizzutti of Swiss precious metals dealers MKS Pamp Group, stated that removing the totemic barrier of $2,000 an ounce means investors must change their benchmarks. He believes that the adjustment will be greater.

A wave of hoarding has fueled the rally. Investors added 922 tonnes of gold worth $60 billion at current prices to their holdings in exchange-traded funds this year, according to the World Gold Council.

Gold Could Hit $3,000 in Less than 2 Years

The health crisis and money printing by central banks depreciated the value of other assets. So investors see gold as a commodity that should hold its value.

Usually, US bond yields are perceived as a safe asset and it is much more popular than gold. However, now their value has dropped to minus 1.07% from 0.15% earlier in the year, making bullion seem like a better bet.

The value of the dollar, another rival for gold, has decreased too. Its value dropped to 2-year lows as the new wave of the coronavirus infections infects more and more Americans. 

Carsten Fritsch, an analyst at Commerzbank, stated that central banks are keeping interest rates low and sending money to the markets. It is supportive for the precious metal. Even an economic rebound, which would normally see money move from bullion to more productive assets, would help gold. It is because rising inflation expectations would push real bond yields further. 

Michael Hewson from CMC Markets asserts that gold cannot be printed and it cannot be created artificially. It will hold its value.

According to Bank of America, prices could hit $3,000 in 18 months. But not everyone is convinced of it yet. Demand for gold in Asia has collapsed due to lock downs and high prices. The recovery seems overblown to many, at least in the short term.